Commentary

First Take

Zynga still at the mercy of Facebook

Commentary: Social game maker’s valuation sinks

SAN FRANCISCO (MarketWatch) — Zynga Inc. shares tanked nearly 40% in after-hours trading after the social game developer reported an unexpected loss and gave a disappointing forecast, showing it is clearly at the mercy of Facebook Inc.

As Facebook made changes to try and address spamming concerns, Zynga’s older games got caught in the cross hairs of those changes.

Zynga
ZNGA, -2.66%
said its unexpected loss was due in part to weaker performance of its existing games, changes at Facebook
FB, +0.65%
— which favored the discovery of new games — and a delayed launch of a new game called the Ville.

Shares of the social game developer have in recent months been a favorite of short sellers, who bet on a stock’s decline. As of July 13, according to the NASDAQ, there were 34.3 million shares short. At the end of the second quarter, Zynga had 730.5 million shares outstanding.

While Zynga has developed its own website for its games to ease its dependence off of Facebook, it is also hoping to see more growth in mobile and with better new sequels to its existing games like FarmVille.

But as Zynga CEO Mark Pincus defended the company’s outlook for more positive momentum in the rest of the year, investors instead were crying “game over,” and leaving the Ville.

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